WASHINGTON, D.C.—Participants of the 21 September joint meeting of the Federal Open Market Committee and the Federal Reserve board of governors concluded the pace of the economic expansion slowed during the past few months, but it is unlikely the economy will re-enter a recession.
Based on the slower pace, the group lowered its projection for the increase in real economic activity during the second half of 2010. They also slightly reduced the forecast of growth next year, but continue to anticipate a moderate strengthening of the expansion in 2011 and a further pickup in economic growth in 2012. Minutes of the meeting were released 12 October.
In the intermeeting period, banks continued to report elevated losses on commercial real-estate loans, especially construction and land-development loans. Credit remained readily available for larger corporations with access to financial markets, and there were signs that credit conditions began to improve for smaller companies.
Survey indicators of business conditions softened further in August, according to participants. Incoming construction data indicated business investment in nonresidential structures decreased during the second quarter, but at a slower pace than over the preceding year.
Commercial real-estate markets continued to face difficult financial conditions, but there were some signs the sector might be stabilizing. The prices of commercial properties edged up during the first half of the year and the volume of commercial real-estate sales rose again in August.
Meeting attendees said a few small commercial mortgage-backed securities deals were issued over the intermeeting period and were reportedly well-received by investors, consistent with an easing of conditions and renewed interest in the CMBS market since the beginning of the year. But the volume of CMBS issuance in 2010 remains very low compared to levels seen before the onset of the financial crisis and total commercial mortgage debt continued to contract amid further increases in delinquency rates on commercial mortgages.
Employment
Private businesses increased employment modestly in August, but the length of the workweek was unchanged and the unemployment rate remained elevated. The average monthly increase in private payroll employment over the three months ending in August was small and was less than the average gain earlier in the year.
Average weekly hours of all employees were little changed, on net, in recent months after rising during the first half of the year. The unemployment rate ticked up in August and remained close to the level that has prevailed since the beginning of this year. The labor force participation rate moved up a little in August but was still low. Initial claims for unemployment insurance remained at an elevated level over the intermeeting period. In addition, other indicators of labor demand, such as measures of hiring and job vacancies, did not improve.
Other indicators discussed at the meeting:
- Overall inflation is projected to remain subdued.
- Consumer confidence remained muted during August and early September, with households more pessimistic about the outlook for their personal financial situations and general economic conditions.
- Net debt financing by United States nonfinancial corporations remained robust in August and gross bond issuance was strong.
- Bank loans continued to contract, but the pace of contraction slowed noticeably from earlier in the year.
- Commercial and industrial loans rose slightly in July, the first increase on a monthly basis since late 2008, and held steady in August.
- Commercial real-estate loans contracted further in August.
The next joint meeting is scheduled for 2 and 3 November.
